Exam 2 review

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Unformatted text preview: Exam 2 review Exam 2 review • This review does not cover every thing, use it with your books, notes, handouts, and quizzes. Chapter 5 Chapter 5 • You need to know: – The traditional costing system (single indirect cost pool system). – OH Allocation rate = ?/?. – What causes over costing and under costing of products when using the traditional costing system. – The main difference between ABC and the traditional costing system. Chapter 5 Chapter 5 • You need to know: – How ABC system refines a costing system. – Cost Hierarchies. – Examples on each level of the cost hierarchies. – What the appropriate cost driver (allocation base) of the different activities are (e.g., for the machinery department OH cost, the appropriate cost driver is machine hours…). Chapter 5 Chapter 5 • You need to know: – The advantages of ABC over the traditional costing system. – What is activity cost management? – When ABC and department costing system will be the same. – What the benefits of implementing ABC are. – What the limitation of ABC are. Chapter 5 Chapter 5 – King Corporation has two departments, Small and Large. Central costs could be allocated to the two departments in various ways. Small Department Large Department – – – – Square footage Number of employees Sales 6,000 1,120 $400,000 18,000 480 $2,000,000 Chapter 5 Chapter 5 • If advertising expense of $300,000 is allocated on the basis of sales, • • • • the amount allocated to the Small Department would be? If total advertising expense of $300,000 is allocated on the basis of sales, the amount allocated to the Large Department would be? If total payroll processing costs of $96,000 are allocated on the basis of number of employees, the amount allocated to the Small Department would be? If total payroll processing costs of $60,000 are allocated on the basis of number of employees, the amount allocated to the Large Department would be? If total rent expense of $120,000 is allocated on the basis of square footage, the amount allocated to the Small Department would be? Chapter 5 Chapter 5 • • • • • • Answers: 50,000 250,000 67,200 18,000 30,000 Chapter 5 Chapter 5 • Tiger Pride produces two product lines: T­shirts and Sweatshirts. • • • • • • • • • Product profitability is analyzed as follows: Production and sales volume Selling price Direct material Direct labor Manufacturing overhead Gross profit Selling and administrative Operating profit T­SHIRTS SWEATSHIRTS 3.00 60,000 units 35,0...
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